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Thursday, 12 November 15
FOREIGN COAL MINE ACQUISITION - STRATEGY VERSUS OPPORTUNITY FOR INDIAN UTILITIES - DIPESH DIPU
.jpg) The acquisition market for thermal coal assets abroad is dull. Sellers of all hues are in the market; some are actively scouting for buyers while others, hoping against hope that someone looking to buy might knock the door and hence, are their running operations even in cash losses. The coal assets were acquired by many Indian power utilities and commodity trading companies, and some were acquired even leading to unrelated diversification. Indonesia was the toast of coal mine acquisition investments from Indian companies, while there were big investments in Australia, South Africa and other countries too. Why now, when the quoted asset prices are all time low, most Indian investors are shying away when the contrarian strategy would typically require one to grab the opportunity?
The global prices of thermal coal are lower than the March 2009 levels, a lowest observed in a decade after the fall due to global financial crisis. Costs on the other hand have been rising, marginal costs of mining in Australia for a large percentile of coal mines is upward of US $ 60 per tonne, which is nearly the price they fetch for high grade coal. Percentiles for South African and Indonesian mines are better as these are the lowest cost producers in the world. It is common sense that when the commodity price is low, below the marginal cash cost of production, it is advisable to buy the lowest cost producer, which will survive and benefit once the commodity price recovers after the more expensive players are forced out of the market. Now, when the coal prices are lower than the marginal costs and there are several low cost producers willing to sell or have been forced to sell due to financial distress, the absence of buyers indicates only one thing – the concern about price recovery.
Global thermal coal prices had been stable in nominal terms through the mid-1970s till 2003, almost range-bound from US$ 25-35 per tonne. This essentially meant that in real terms prices fell through the three decades. However, since then demand led price hikes scaled new peaks every year and reached close to US$ 200 per tonne in July 2008. The global meltdown in the aftermath of financial crisis led to coal prices tumbling down to US$ 60-65 per tonne in March 2009 before heading back to US$ 135-140 per tonne by early 2011. And since then, there has been a constant downward trend that remains unabated till now.
China has been a prime mover of the global coal industry. The prices turned to its peaks when China became a net importer of coal in 2008-09. In 2014-15, domestic production of coal in China has seen a slowdown due to cost pressures, while its imports have fallen as well by nearly a third from last year. It is being considered that for cleaner environment, China is attempting to lower its dependence on coal-based power generation. While in India, domestic coal supply scenario has improved on two counts - Coal India and SCCL have improved production, and the demand for coal hasn’t picked up as expected. This has led to thermal coal imports falling albeit at a slow pace. Indian power generation capacity addition which was rapid in 2009-2012 has taken a hit, largely due to fuel crisis during that period, apart from challenges such as delays in approvals and clearances and resulting financing constraints. Coal India has also embarked upon a near-1 billion tonnes per annum production by 2020, which may improve domestic coal supplies, while capacity addition growth in power generation may take some time as investor confidence returns to the sector. China and India, thus, do not paint a picture of global coal price recovery soon.
US coal companies are faced with existential questions and have begun to look at the international markets for exports, given that local demand has suffered due to environmental protection laws. Australia also seems to have oversupply challenge. Several key projects that could have further enhanced coal production in Bowen and Galilee basins are now mothballed. Japan has plans to increase coal based generation that will positively impact the demand for coal, but that may not absorb the high oversupplies already in the market.
The other significant disruptor for coal sector has been the emergence of renewable energy, solar power in particular, with scalability and economics gradually tilting in their favour. On a total cost basis, including environmental costs, the inflexion point between coal based and solar power seems to have been reached. The pace of change in technology in these renewables is high, which has resulted in fall of solar power tariffs from Indian Rupees (INR) 12-15 per unit in 2009-10 to INR 4.63 in the recently concluded bids by NTPC. The trend of falling tariffs in solar power coupled with scalabilities that till recently were not considered achievable brought coal based power generation to the inflexion point. While concerns about quality of supplies may persist for some time, suffice it to say that the disruption in coal sector is imminent and inevitable, and that may have an impact on global coal prices.
Given these, it may be optimistic to evaluate coal assets on a price recovery outlook. It may make sense to invest in the assets that may sustain profitability at slightly lower than current prices, possibly in the marginal cost range of US$ 35-45 per tonne for coal of 5000-6000 kCal/kg gross calorific values on as received basis. Investors should prefer operating assets, which may not have construction and development risks as well as risks of permits. Essentially, with these, the investors also need to look at regulatory risks in the destination country.
Indonesian coal sector has been in a flux and has led to enhanced perception of regulatory risks even though from the logistics and mining costs points of view, it may appear the favourable place to buy coalmines. The divestment clause that restricts foreign ownership and eventually makes a foreign buyer a minority stakeholder has the potential to restrict investments only to smaller projects where reserves can be exhausted before a mine transfers ownership. South Africa and southern African countries like Mozambique, Malawi, Zimbabwe, Namibia and Botswana have challenges of logistics even though the regulatory regimes are favourable. Mozambique, for instance, has only one operating Sena rail link connecting the coalfields in Tete to Beira port, which is already running at capacity, and is about 900 kilometers. Infrastructure development plans are now doubtful given the concern of coal price recoveries. Australia has challenges of higher cost of production, compliance costs and higher logistics costs, particularly for coal assets in Galilee basin.
Given these, the attractiveness of coal mine acquisition is low even though the low asset prices provide opportunities. As reported in the national newspapers, Indian government owned companies seem to be scouting for assets, which is far more challenging for them given their approach and methodologies for acquisition. Tendering route may be considered the least efficient for such acquisition as the market size in such tenders gets limited to only those assets who choose to respond to the tenders. It is a passive approach which gets hampered by inefficiencies in information channels as well and may not reach the potential sellers with good assets. In my recently concluded assignments for a few of such government-owned companies, it was observed that most bidders turned out to be Indian companies that invested abroad and have not been able to develop the coal assets well for themselves. For success in the market, it is required that ground work is done privately to assess target zones and identify strategically fitting assets and then approach the owners to nudge them to sell. This, however, may be tough for the government-owned companies in light of their internal processes, which obviously have not been designed for such acquisitions.
For Indian companies to acquire foreign coal assets, it is critical that they identify their strategic objectives and not go by the opportunities the market seemingly provides in terms of large number of sellers in the market willing to sell at relatively low prices. Private sector companies have better procedural manoeuvrability while government-owned companies get tied up in their own processes to effectively acquire assets that fit them. In any case, the long term price outlook being uncertain, investors need to tread with caution and pick assets that may sustain profitability even with worse forecasts. Else, the winners curse follows.
By Dipesh Dipu
Energy, Natural Resources and Infrastructure Expert
India
Views and opinions / conclusion expressed herein are personal views of the author and not that of COALspot.com.
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Sunday, 19 July 15
BDI GAINED AND CROSSED 1000 MARK THIS WEEK
COALspot.com: The BDI gained and crossed 1000 mark after many months this Friday. The BDI was up almost 20 pct and closed 1048 points on 17 July 20 ...
Saturday, 18 July 15
INTERVIEW : FRANZ ESCALANTE, CHIEF OF INFORMATION SYSTEMS, MINERA CHINALCO, PERU
We are interested in the technology of Autonomous trucks, the new-generation trucks are not remote controlled, they are truly autonomous - Franz Es ...
Friday, 17 July 15
COAL PRODUCTION IN THE U.S. INCREASES SHARPLY FOR THE WEEK ENDING JULY 11
COALspot.com – United States the second largest coal producer in the world has produced approximately totaled an estimated 16.4 million short ...
Friday, 17 July 15
INDONESIAN POWER-STATION COAL SWAPS DECLINE CONTINUES THIS PAST WEEK
COALspot.com: Indonesian coal swap for delivery Q3 2015 declined month on month and week over week, this past week.
The Q3 swap was declined $ ...
Friday, 17 July 15
DO CANCELLATION RIGHTS UNDER VOYAGE CHARTERPARTY SURVIVE RE-NOMINATION OF LOAD PORT? - INCE&CO
KNOWLEDGE TO ELEVATE
Do cancellation rights under voyage charterparty survive re-nomination of load port?
St Shipping & Transport Inc ...
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Showing 2916 to 2920 news of total 6871 |
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- Iligan Light & Power Inc, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Mjunction Services Limited - India
- The State Trading Corporation of India Ltd
- Eastern Coal Council - USA
- Gujarat Mineral Development Corp Ltd - India
- Siam City Cement - Thailand
- Kartika Selabumi Mining - Indonesia
- SMC Global Power, Philippines
- Tata Chemicals Ltd - India
- Independent Power Producers Association of India
- ASAPP Information Group - India
- Africa Commodities Group - South Africa
- Cement Manufacturers Association - India
- Ceylon Electricity Board - Sri Lanka
- Planning Commission, India
- Port Waratah Coal Services - Australia
- San Jose City I Power Corp, Philippines
- ICICI Bank Limited - India
- Sree Jayajothi Cements Limited - India
- Vedanta Resources Plc - India
- Parry Sugars Refinery, India
- Sojitz Corporation - Japan
- Grasim Industreis Ltd - India
- PowerSource Philippines DevCo
- Maheswari Brothers Coal Limited - India
- Edison Trading Spa - Italy
- Attock Cement Pakistan Limited
- Central Java Power - Indonesia
- Carbofer General Trading SA - India
- Altura Mining Limited, Indonesia
- Star Paper Mills Limited - India
- PTC India Limited - India
- Bukit Baiduri Energy - Indonesia
- Petron Corporation, Philippines
- London Commodity Brokers - England
- Bhushan Steel Limited - India
- Ambuja Cements Ltd - India
- LBH Netherlands Bv - Netherlands
- Energy Development Corp, Philippines
- OPG Power Generation Pvt Ltd - India
- Sical Logistics Limited - India
- Indonesian Coal Mining Association
- Thai Mozambique Logistica
- Formosa Plastics Group - Taiwan
- Lanco Infratech Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Therma Luzon, Inc, Philippines
- Georgia Ports Authority, United States
- Mintek Dendrill Indonesia
- Wilmar Investment Holdings
- Globalindo Alam Lestari - Indonesia
- GMR Energy Limited - India
- Borneo Indobara - Indonesia
- Merrill Lynch Commodities Europe
- Heidelberg Cement - Germany
- Barasentosa Lestari - Indonesia
- Karaikal Port Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
- Cigading International Bulk Terminal - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Minerals Council of Australia
- Siam City Cement PLC, Thailand
- South Luzon Thermal Energy Corporation
- India Bulls Power Limited - India
- Vizag Seaport Private Limited - India
- Medco Energi Mining Internasional
- Romanian Commodities Exchange
- CIMB Investment Bank - Malaysia
- GVK Power & Infra Limited - India
- Electricity Generating Authority of Thailand
- Kumho Petrochemical, South Korea
- Chettinad Cement Corporation Ltd - India
- Toyota Tsusho Corporation, Japan
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- PNOC Exploration Corporation - Philippines
- Timah Investasi Mineral - Indoneisa
- Ministry of Mines - Canada
- Salva Resources Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- McConnell Dowell - Australia
- Interocean Group of Companies - India
- Neyveli Lignite Corporation Ltd, - India
- Billiton Holdings Pty Ltd - Australia
- Banpu Public Company Limited - Thailand
- Miang Besar Coal Terminal - Indonesia
- Videocon Industries ltd - India
- Australian Coal Association
- GAC Shipping (India) Pvt Ltd
- Sinarmas Energy and Mining - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bharathi Cement Corporation - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Orica Australia Pty. Ltd.
- Jindal Steel & Power Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Jaiprakash Power Ventures ltd
- Energy Link Ltd, New Zealand
- Metalloyd Limited - United Kingdom
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- TNB Fuel Sdn Bhd - Malaysia
- Electricity Authority, New Zealand
- Petrochimia International Co. Ltd.- Taiwan
- Holcim Trading Pte Ltd - Singapore
- Global Business Power Corporation, Philippines
- Trasteel International SA, Italy
- Manunggal Multi Energi - Indonesia
- Central Electricity Authority - India
- Tamil Nadu electricity Board
- Price Waterhouse Coopers - Russia
- Agrawal Coal Company - India
- Orica Mining Services - Indonesia
- Goldman Sachs - Singapore
- Sarangani Energy Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Essar Steel Hazira Ltd - India
- The Treasury - Australian Government
- Riau Bara Harum - Indonesia
- TeaM Sual Corporation - Philippines
- PetroVietnam Power Coal Import and Supply Company
- Kapuas Tunggal Persada - Indonesia
- Indian Oil Corporation Limited
- Deloitte Consulting - India
- Rashtriya Ispat Nigam Limited - India
- CNBM International Corporation - China
- Savvy Resources Ltd - HongKong
- Karbindo Abesyapradhi - Indoneisa
- Wood Mackenzie - Singapore
- Straits Asia Resources Limited - Singapore
- Posco Energy - South Korea
- Samtan Co., Ltd - South Korea
- Bukit Asam (Persero) Tbk - Indonesia
- SMG Consultants - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Rio Tinto Coal - Australia
- Power Finance Corporation Ltd., India
- Meenaskhi Energy Private Limited - India
- Commonwealth Bank - Australia
- Latin American Coal - Colombia
- Simpson Spence & Young - Indonesia
- Aditya Birla Group - India
- Coal and Oil Company - UAE
- Economic Council, Georgia
- Renaissance Capital - South Africa
- Xindia Steels Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Dalmia Cement Bharat India
- Intertek Mineral Services - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Ministry of Finance - Indonesia
- Semirara Mining Corp, Philippines
- Indo Tambangraya Megah - Indonesia
- Sindya Power Generating Company Private Ltd
- Eastern Energy - Thailand
- Gujarat Electricity Regulatory Commission - India
- Coalindo Energy - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Antam Resourcindo - Indonesia
- Standard Chartered Bank - UAE
- IHS Mccloskey Coal Group - USA
- VISA Power Limited - India
- Thiess Contractors Indonesia
- Global Coal Blending Company Limited - Australia
- Parliament of New Zealand
- Malabar Cements Ltd - India
- Indogreen Group - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Global Green Power PLC Corporation, Philippines
- Marubeni Corporation - India
- Mercator Lines Limited - India
- Directorate Of Revenue Intelligence - India
- European Bulk Services B.V. - Netherlands
- IEA Clean Coal Centre - UK
- Maharashtra Electricity Regulatory Commission - India
- Meralco Power Generation, Philippines
- Baramulti Group, Indonesia
- Sakthi Sugars Limited - India
- Kaltim Prima Coal - Indonesia
- MS Steel International - UAE
- Oldendorff Carriers - Singapore
- Aboitiz Power Corporation - Philippines
- Anglo American - United Kingdom
- Chamber of Mines of South Africa
- Kalimantan Lumbung Energi - Indonesia
- Makarim & Taira - Indonesia
- Singapore Mercantile Exchange
- International Coal Ventures Pvt Ltd - India
- Bhatia International Limited - India
- New Zealand Coal & Carbon
- White Energy Company Limited
- Pendopo Energi Batubara - Indonesia
- Ind-Barath Power Infra Limited - India
- Asmin Koalindo Tuhup - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Mercuria Energy - Indonesia
- Ministry of Transport, Egypt
- Madhucon Powers Ltd - India
- Bulk Trading Sa - Switzerland
- Semirara Mining and Power Corporation, Philippines
- Australian Commodity Traders Exchange
- Leighton Contractors Pty Ltd - Australia
- Bhoruka Overseas - Indonesia
- Larsen & Toubro Limited - India
- Bangladesh Power Developement Board
- Bayan Resources Tbk. - Indonesia
- The University of Queensland
- Gujarat Sidhee Cement - India
- Kideco Jaya Agung - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Indika Energy - Indonesia
- Coastal Gujarat Power Limited - India
- Uttam Galva Steels Limited - India
- Indian Energy Exchange, India
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